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WTO Appellate Body Rules on Dispute over US Countervailing Duty Law

14 July 2014

Mayer Brown Legal Update

The Appellate Body of the World Trade Organization (“WTO”) has issued its decision in the dispute between the United States and China over the so-called “GPX Legislation.”1 The GPX Legislation expressly authorizes the US Department of Commerce (“Commerce”) to impose countervailing duties (“CVDs”) against imports from non-market economy (“NME”) countries, including China.

On July 7, 2014, the Appellate Body overruled one part of a WTO panel’s earlier finding that the United States had acted consistently with the General Agreement on Tariffs and Trade 1994 (“GATT 1994”) when it adopted the GPX Legislation; however, due to the panel’s lack of further analysis, the Appellate Body stopped short of saying the GPX Legislation was in fact inconsistent with GATT 1994 and relevant WTO rules. The Appellate Body did, however, affirm the panel’s finding that Commerce failed to investigate and avoid double remedies in 25 CVD proceedings against Chinese products over the last several years.

China initiated the WTO dispute settlement process in September 2012, shortly after the GPX Legislation was signed into law by President Obama. China claimed that the GPX Legislation was inconsistent with US obligations under Article X of the GATT 1994. Article X prohibits the enforcement of measures that restrict or penalize imports prior to their publication. The panel rejected all of China’s Article X claims on March 27, 2014. However, it agreed with China that the United States failed to investigate and avoid double remedies in 25 CVD proceedings conducted by Commerce against Chinese products between November 2006 and March 2012, thus violating the WTO Agreement on Subsidies and Countervailing Measures (“SCM Agreement”).2

Both the United States and China appealed to the Appellate Body. China requested reversal of the panel’s finding that the United States acted consistently with Article X:2 of GATT 1994, which prohibits enforcement of a measure of general application “effecting an advance in a rate of duty or other charge on imports under an established and uniform practice” or “imposing a new or more burdensome requirement, restriction or prohibition on imports” before such measure has been officially published. The panel found that the GPX Legislation was a measure of general application that had been “enforced” prior to its official publication, but it neither affected an “advance” in a rate of duty or other charge on imports under an established and uniform practice nor imposed a “new or more burdensome” requirement, restriction or prohibition on imports.

The Appellate Body reversed the panel’s finding and its interpretation of Article X:2 as requiring a comparison between the measure of general application and an established and uniform practice.3 The Appellate Body further declared moot and of no legal effect the panel’s findings that (i) Commerce’s practice of applying CVDs to China as an NME country between 2006 and 2012 was presumptively lawful under US law; and (ii) it is potentially relevant to address the issue of whether Commerce’s practice prior to enactment of the GPX Legislation was lawful.4

However, after examining the text of the measure at issue and the US Tariff Act, together with other relevant elements of US CVD law, including US federal court decisions, the Appellate Body concluded that it was unable to complete the analysis as to whether the GPX Legislation changed the US CVD law because of the panel’s limited inquiry into, and analysis of, the elements related to Commerce's practice prior to 2006.5 Therefore, the Appellate Body left open the question whether the GPX Legislation effected an advance in a rate of duty or imposed a new or more burdensome requirement or restriction on imports within the meaning of Article X:2.6

The United States, for its part, requested the Appellate Body to reverse the panel's finding that the United States violated the SCM Agreement. The US focused its attention on China's initial request that a dispute settlement panel be established by the WTO. Specifically, it argued that China’s request failed to identify the specific measures at issue and to provide a brief summary of the legal basis of the complaint sufficient to present the problem clearly as required by Article 6.2 of the WTO Understanding on Rules and Procedures Governing the Settlement of Disputes.7 The Appellate Body disagreed with the United States when it concluded that China had identified one specific measure (i.e., the failure of the US authorities to avoid and investigate double remedies). Additionally, according to the Appellate Body, China’s panel request provided a plain connection between the measure at issue and the relevant articles of the SCM Agreement such that the problem was presented with sufficient clarity. As a result, the Appellate Body upheld the panel’s finding with respect to the 25 CVD proceedings against Chinese products.8

The United States and China each issued a statement claiming victory after the publication of the Appellate Body report. US Ambassador Michael Froman said that China failed for the second time in its attack on the United States’ “transparent and democratic process in enacting [the GPX Legislation] and applying [US CVD law] to China.” US Secretary of Commerce Penny Pritzker stated that the decision would allow US industries to “continue to rely on U.S. trade laws to address unfair competition from their subsidized Chinese competitors.” On the other hand, China claimed the report to be another significant victory, following its previous WTO appeal against US antidumping and anti-subsidy measures (in DS379), against what it called the “abus[e] of trade remedy measures” by the United States. China also urged the United States “to respect the adjudication of the WTO” and to guarantee a “fair business environment” for Chinese enterprises.

It is unclear whether and when the United States will reopen and review the 25 CVD proceedings conducted between November 2006 and March 2012 to determine whether double remedies were applied.

Endnotes:

1 Application of Tariff Act of 1930 to Nonmarket Economy Countries, Pub. L. No. 112-99, 126 Stat. 265 (2012). 2 “Double remedies” occur in situations where countervailing duties are applied to NME exports at the same time that antidumping duties, calculated using the “surrogate value” methodology, are applied to the exports and there is a decrease to a company’s export prices due to a countervailed domestic subsidy and the use of the surrogate value methodology. In such situations, the United States is to determine whether the subsidy increased the dumping margin and, if so, make a corresponding reduction to the dumping margin (to avoid “double counting”). 3 Appellate Body Report, United States – Countervailing and Anti-Dumping Measures on Certain Products from China, WT/DS449/AB/R, para. 4.119 & 120 (July 7, 2014) (“US - GPX Legislation”). 4 Id., para. 4.120.5 Id., para. 4.159 & 183.6 Id., para. 4.183.7See Understanding on Rules and Procedures Governing the Settlement of Disputes art. 6.2, Apr. 15, 1994. 8 US – GPX Legislation, para. 4.52.

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